Did you know that the global blockchain market is expected to be at $23.3 billion by 2023? These numbers can be jaw-breaking especially given that cryptocurrencies have been in existence for slightly over a decade.
Additionally, they prove that there is no better time than now to learn and invest in cryptocurrencies.
Bitcoin and bitcoin cash is most likely the first terms that you come across when thinking about cryptocurrencies. Although these terms may sound similar and share many ingredients, they have many distinctions.
Generally, bitcoin cash is hard forked from bitcoin to get a new cryptocurrency with different features.
So, what is a hard fork, what is the difference between bitcoin and bitcoin cash, and which one should you invest in? Read on to get these answers to help you become a smart investor.
What is Bitcoin?
Bitcoin was the first cryptocurrency ever that was created in 2008 and first used in 2009. It is a digital currency that does not need intermediaries such as the government or banks to operate.
Additionally, it is a method of doing business away from the usual financial infrastructure. It allows transactions with total transparency through the use of a ledger known as a blockchain.
Unlike fiat money, bitcoin is powered by a combination of peer-to-peer technologies. These technologies are cryptographic, meaning that only the sender and receiver can see the information involved.
Bitcoin was created by developer Satoshi Nakamoto, although the identity of this person or persons is still a mystery. When it was first launched, it was worth $0, and it hit $1 in 2011.
However, its value has greatly and rapidly increased, getting to $65,000 in 2021.
How does Bitcoin work?
In a gist, bitcoin is a computer file stored in a digital wallet. This computer file is powered by an open-source code known as a blockchain.
As you would have guessed from its name, a blockchain is a connection of blocks; that is, transactions.
These transactions are chained to the code and create a permanent record of the transaction. There is high transparency in the system since all computers in the blockchain have a loss of all the transactions.
Additionally, a bitcoin wallet contains public and private keys. These keys work together to enable the owner of the bitcoin to transact. After the transaction, bitcoin miners confirm it using high-speed computers.
Bitcoin miners are owners of the high-speed computers that confirm the transactions. These miners are paid in bitcoins.
How do you make money with Bitcoin?
There are two main income methods through bitcoin. One, you can become a Bitcoin miner. To do this, you need to have high-performance computers and high bitcoin technical expertise.
On the other hand, you can buy and store your bitcoins and sell them at a higher value. Most people earning through bitcoin use the latter option.
What is a Fork?
A fork is a change in the blockchain’s protocol that decides whether or not a transaction is valid. It is mainly done when cryptocurrency developers see a problem with the current cryptocurrency that they need to rectify.
A fork can have various impacts on the cryptocurrency, with the greatest being price fluctuations.
A fork can either be a hard fork or a soft fork. A hard fork is a fork that needs high support from coin holders with a connection to the network. For it to be updated, there need to be several updates to the newest version of the software.
If the number of users who update is inadequate, it is hard to get a clean update, leading to a break in the blockchain. When a hard fork is done, both the old and new blockchains remain.
On the other hand, a soft fork is a fork caused by minor updates from miners. In the event of a soft fork, one of the blockchains is lost, and only one blockchain remains valid, which is the new blockchain.
What is Bitcoin Cash?
Bitcoin cash is a cryptocurrency that was created in 2017. It is a hard fork of the original bitcoin. For this reason, it uses the same technology and processes as bitcoin, though there are some variations.
Bitcoin cash is not backed by a government or bank and is anonymous. Additionally, like bitcoin, it uses blockchain.
Bitcoin cash was developed to solve some problems with bitcoin. Some of these problems are signature data and block size. These problems in bitcoin grew as it surged in popularity and clogged its blockchain.
This made it hard to scale, thus raising its transaction cost and time. As a result, bitcoin producers and miners joined to create a hard fork to solve these issues, which became bitcoin cash.
Bitcoin cash had bigger blocks that made it hard to accommodate the growing user base. It was created to hold 8MBs in each block and process at least 116 transactions per second.
By the end of 2020, bitcoin cash was worth $300. However, in early 2021, it rose to $480. Like bitcoin, the value of bitcoin cash is highly volatile.
This is why in May 2021, its value was $1500, but by July, it had dropped to $418.
Learning how to cope with its volatility is the best way to make it in bitcoin cash.
How does Bitcoin Cash work?
Bitcoin cash uses large block sizes, 4-8 times larger than those in bitcoin, to process transactions. These block sizes make the transactions so fast that you can make a grab-and-go purchase which is impossible with bitcoin.
As mentioned earlier, bitcoin cash uses blockchain technology. The transactions done are stored in blocks, which are then distributed across the network.
During the distribution, the distributing wallets have addresses, which are usually numbers or letters.
Through these addresses, it is possible to tell the address owner and how much they transacted. Nevertheless, it takes someone with high bitcoin cash knowledge to track who controls or owns the wallet.
This should not scare you since bitcoin cash transactions are verified through cryptography, making them safe and secure.
How do Bitcoin and Bitcoin Cash differ?
Given that one is a parent to the other, one may expect bitcoin and bitcoin cash to function similarly.
However, a hard fork produces a cryptocurrency with different characteristics, so there are many differences between bitcoin and bitcoin cash.
Additionally, these differences continue to grow as the developers for each cryptocurrency continue to strive to achieve their different goals.
Some of these differences are:
One of the main differences between bitcoin and bitcoin cash is the algorithm. The major differences in algorithms help eliminate the possibilities of a replay.
Bitcoin cash has a more complicated algorithm than that of bitcoin. These different algorithms also help sustain a stable generation of blocks after every ten minutes.
They do this by either doubling the difficulty when they are ahead of schedule or cutting it if they fall behind schedule. The blockchains are expected to co-exist with these algorithms without any problems, even if another hard fork is done.
Transaction speed and fees
Slow transaction speeds and high transaction fees were some of the reasons that triggered the hard fork of bitcoin to get bitcoin cash.
After the fork, the result was the bitcoin cash, which had a transaction speed way higher than the bitcoin. The block size differences caused the huge difference.
While bitcoin has a block size of 1MB, bitcoin cash has a block size of 32MB. This makes it possible for bitcoin cash to process up to 200 transactions per second.
On the other hand, bitcoin can only process seven transactions per second. These faster transaction rates have also enabled lower transaction costs for bitcoin cash.
The high transaction rates in bitcoin have made most people opt for bitcoin cash.
Value of investment
The price you pay to invest in bitcoin is higher than that of bitcoin cash. Due to some of its inconveniences, bitcoin lost most of its people to bitcoin cash. As a result, its price of investment is higher than that of bitcoin cash.
However, as an investor, the cost you pay for investment will most likely not affect you as long as it appreciates its value.
Supporting smart contact
Currently, bitcoin does not support smart contracts. However, there are ongoing projects to help come up with decentralized bitcoin.
With bitcoin cash, there is the use of smart contract languages such as Cash script.
This has helped more complex functions in bitcoin cash.
Additionally, through Cash script, bitcoin cash is likely to adopt decentralized finance (Defi), which will help it compete with other cryptocurrencies such as bitcoin and Ethereum, among others.
There is a replace-by-fee feature present in bitcoin that does not exist in bitcoin cash. This feature in bitcoin helps cancel unconfirmed and double-spent transactions.
Since there is no return-by-fee feature in bitcoin cash, its unconfirmed features are irrevocable, making it more secure.
Additionally, it makes it possible and easy to transact small amounts. Bitcoin cash can thus serve as a payment method in case there are many small-value transactions needed within a short time.
Bitcoin blockchain projects have made use of the Omni layer for issuing tokens. This platform has enabled trade and created currencies among other digital assets. On the other hand, bitcoin cash adopted a simple ledger protocol.
Through this protocol, developers can issue tokens using bitcoin cash. Additionally, the simple ledger protocol accepts non-fungible tokens, although they have a limited adoption at bitcoin cash.
This map will guide you to know the different types of cryptocurrency you can invest in.
Advantages of Bitcoin Cash
Of all the reasons you may have for choosing bitcoin cash, the greatest is probably that it is faster and cheaper to use. Since it is more scalable, it allows many people to transact at the same time.
The developers of bitcoin cash make solutions for bitcoin cash problems faster, thus increasing its scalability. Additionally, bitcoin cash is easier to move around between exchanges.
It is better to trade within the case of surges as compared to bitcoin.
Disadvantages of Bitcoin Cash
Bitcoin cash has not yet earned popularity and trust among users like bitcoin. Additionally, it has a lower market penetration rate than bitcoin. On the other hand, it has the same mining rate as bitcoin.
For this reason, you are more likely to earn more as a bitcoin miner than a bitcoin cash miner. Bitcoin cash also has fewer trading pairs than bitcoin, making it less tradable.
Advantages of Bitcoin Over Bitcoin Cash
One of the first advantages of investing in bitcoin over bitcoin cash is that it was the first cryptocurrency ever, thus making it more popular.
Bitcoin carries a market share of 44.5% of the entire cryptocurrency sector, and its net worth is $39.5 billion. It is the base currency of the entire cryptocurrency and is tradable on most exchanges.
Disadvantages of Bitcoin Over Bitcoin Cash
One of the greatest disadvantages of bitcoin is that it is slower, older, and more expensive.
These were the main reasons for the invention of bitcoin cash. Additionally, it lacks a core development team, making it hard to implement and solve any scalability issues that arise.
Which one should you invest in?
After understanding how bitcoin and bitcoin cash work, it is easy to determine which one will work best for you. However, don’t rush to invest in either before you understand what it entails.
Consider your strategies and goals to help guide you on the best cryptocurrency that will work for you.
Are You in a Position to Dive Into either Bitcoin or Bitcoin Cash?
If you are a newbie in cryptocurrency, it is easy to think that bitcoin and bitcoin cash refers to the same thing.
However, if you plan on investing in either, first learn the difference between bitcoin and bitcoin cash to guide you on the best to go for.
Understanding their history, structure, and functions will also help you avoid costly cryptocurrency mistakes.